Activist Investor Group Targets Kohl’s Exec Pay in Bid to Replace Five Board Directors

An activist investor group at Kohl’s Corp. has called out the retailer’s “egregious” executive compensation in a bid to nominate five directors to its board.

In a letter dated today, the group — including Macellum Advisors GP LLC, Ancora Holdings Inc., Legion Partners Asset Management LLC and 4010 Capital LLC — sought the support of shareholders through a vote to replace some of the board’s existing members. The investors, which hold a stake of just over 9% in Kohl’s, argued that the company continues to reward senior members of its management team despite “deteriorating” sales and profits.

“In our view, the board has created a compensation plan that rewards executives despite years of underperformance, by consistently setting short and long-term targets for bonuses below prior years’ results,” the group wrote. “We contend that this ‘heads we win, tails shareholders lose’ structure is diametrically opposed to shareholder alignment and value creation.”

As detailed in the letter, Kohl’s paid its top five executives more than $278 million in total compensation from 2011 to 2019. During that same timeframe, the Menomonee Falls, Wis.-based chain’s sales remained relatively flat from $18.8 billion a decade ago to $18.9 billion in 2019, while its operating income dropped 44% from $2.2 billion to $1.2 billion. Offering a contrast, the group brought up the Census Bureau’s annual retail trade survey, which indicated that the clothing and accessories industry grew 17% in net sales over the 10-year period.

“We believe the board’s broken culture of rewarding management for mediocre or downright poor performance stems in part from their propensity to compare Kohl’s to the narrow, ailing department store sector rather than to a broader, more relevant group of discretionary soft-goods retailers,” the investors added. “A deeper level of relevant retail experience on the board would contribute to a better understanding of the true competitive environment and to the design of more appropriate incentive structures.”

Kohl’s did not immediately respond to FN’s request for comment.

Less than three weeks ago, the department store issued a statement in response to the group’s attempt to replace five directors on its 12-member board. (The activist investors originally sought to nominate nine directors.) According to Kohl’s, the nominees put forth by the group lack “critical relevant experience” and “meaningful digital experience.” It added that its own directors “outmatch” the investors’ slate of nominees.

“Regardless of whether the activists are nominating five or nine directors, their capabilities and track records simply do not measure up,” it said in the statement. “Shareholders should reject the efforts of this slate to impose short-termism and financial engineering to disrupt the Kohl’s business strategy and our ongoing momentum.”

As part of its strategic plan announced in October, Kohl’s has targeted better operating margins at a level of between 7% to 8%. It has also forged a long-term partnership with beauty giant Sephora, expanded its contactless offerings and delivered a fourth-quarter earnings and sales beat.

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